Decade Review 2000-2009: The channel carve-up

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The struggle of the decade has come as the decline in voice revenue has outpaced the late rise in data revenue for network operators, the industry paymasters. Competition has been intense, and capital expenditure has been high to realise the promise of data.

The entry to the market of 3 in 2003 encapsulates the issue; it was founded to pioneer markedly advanced 3G services but has run ever since as any challenger brand in any market and defined itself by price.

Mobile pricing has come down during this decade. Recent European telecoms regulation, as commissioner Viviane Reding has set out to get a fair deal for roaming consumers, has impacted upon operators’ profit lines. Market saturation has peaked as prices have fallen and the technology has become essential to everyday communications.

Despite Orange’s present marketing job, network differentiation by coverage or service is marginal. Device and content ranges drive footfall, and have kept retail strong.

Something was to give. Market pressures at the end of the decade are such that T-Mobile invited bids for its UK operation, before settling on a marriage of convenience in the UK with rival Orange.

But sales channels have simplified. Those in it for easy money have been vanquished by clampdowns on commission and quality, in the past few years especially.

The gold chains and private number plates are fewer. Scams and frauds have been worked out – by opportunists in the first sense and by public authorities as complaints stacked up.

Recently, cashback retailers have been snuffed out as redemption rates on spurious deals spiralled out of control. Likewise, mis-selling has been penned back by Ofcom’s General Condition 23 this year, and box-breaking has been reduced dramatically by vigilant retailers and clever promotions.

More significantly, VAT carousel fraud, or missing trader fraud, has been virtually eliminated this decade by the Government’s over-bearing policing of the trade. Many fraudsters have been jailed, but many good traders have been stopped in their tracks as well.

Hundreds of cases are still to be heard as companies claim back withheld input tax to resurrect crippled businesses. There have been important cases, including the ECJ Bond House ruling in 2006 and the High Court Livewire/Olympia decision this year, but none has been the watershed traders long for.

In all the margin pressure, a fierce brand battle has been fought for the consumer mass market. Network operators have looked increasingly to eliminate ‘middle men’ – or to erode at least the upfront commissions traditionally afforded them, and hence the Frankenstein’s monster they created by subsidy and commission the decade previously.

Network retailers have become ubiquitous on UK high streets, alongside king independents Carphone Warehouse and Phones 4U. The prepay boom was slowed by 2003/4, and network operators reasserted a drive for contract additions and started to take sales direct where they could.

The old dealer network has been consequently forced out to secondary towns by grocers, non-specialists and e-tailers – and into the same tub as every independent baker, butcher and candlestick maker.

By 2007, the channel had come around to Keith Curran’s long-held vision for sustainable business; that the quality and profitability of the connection should be the only thing that matters.

His Yes Telecom service provision business, bought by Vodafone in 2005 for £22 million, is now the essential model for all third-party airtime sales. There are fewer dealers and no ‘new’ business. It is an upgrade market for traditional airtime, and contract cycles are now stretched to the point that two-year deals represent as much as 50 per cent of total subscription sales.

2007 is the key date: when the network struggle to reconcile the sales channels with the reduced availability of business came to a head. They carved it up. Vodafone was most bullying and alienating, as it cut ties with Carphone on the high street and HSC, Fone Logistics and MoCo in dealer sales.

Full article in Mobile News issue 454 (December 14, 2009).

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